Small is beautiful is the title of a collection of essays written by economist EF Schumacher. Published in the early 1970s – an era best known for the rise of the conglomerate – the book went against the grain to sing the praises of small companies.

For investors, this mantra has proven to be a money-spinner over the past three years as shares in small and mid-sized companies enjoyed a strong run. But smaller companies could face a tough year amid mounting signs that global growth could slow. That said, while smaller companies tend to be more sensitive to the economy, they also have a faster rate of growth and so therefore should not be discounted by investors during a period of downturn.

Winner: Hill & Smith Holdings

At a time when the words “Midlands manufacturer” often appear in the same sentence as “closure” and “insolvent”, Solihull-based Hill & Smith has managed to thrive.

The company, which makes products ranging from safety barriers for highway maintenance work to electronic road information signs, has transformed heavy government spending on road maintenance into share price growth. The stock has risen by nearly 400 per cent during the past five years from 66.5p to 329p – giving the company a market capitalisation of around £249m. Revenue and pre-tax profit jumped respectively from £241.8m ($481.3m) and £10.1 in 2001 to £306m and £17.3m in 2006.

Much of the remarkable turnround seen at the company, which only a decade ago was on the brink of collapse, can be attributed to David Grove, a local entrepreneur who was bought in with the backing of Close Brothers in 1998 as a “catalyst for change”.

One of the first things he did was cut debt and cut out lossmaking non-core assets to focus on the infrastructure products and galvanising businesses that he thought had the strongest growth potential.

“The company was relying too much on history,” recounts Mr Grove. “When government spending on road building stopped, management at the time didn’t do anything to reposition the business.”

Plus, the company’s high debt level at the time meant there was little money to spend on developing new products – an element that Mr Grove says was crucial to making the company competitive again.

Once the balance sheet was cleaned up, Mr Grove proceeded to implement his growth strategy for the company. This involved a combination of selective acquisitions and investing heavily in improving efficiency and innovation.

The approach has worked wonders. By focusing on making products that are either too heavy and low tech to transport far – such as road barriers – or high-tech equipment with attractive margins – such as the flashing lights that tell motorists when they are speeding – Hill & Smith has avoided the fate of other sector peers, many of whom have either sunk into a decline, moved abroad or gone out of business altogether. “We have put a lot of investment into new products and that is paying off in the niche areas we have targeted,” says Mr Grove. The motorway safety barrier business for example is a safety business, requiring rigorous testing in prototype. That gives better scope for branding and price control than may otherwise be the case.

A focus on innovation has also helped the company keep costs down. Despite spiralling commodity and energy prices, Hill & Smith has reined in costs by creating new designs for products that would use less raw material and energy.

The four companies nominated for the 2008 Company of the Year award are an eclectic lot and range from a building maintenance provider, a crash barrier manufacturer, an aircraft parts maker to a private jet operator.

But if there is a common link between the four nominees, it is perhaps the sense of foresight that each of their chief executives has demonstrated. With an eye to promoting long-term growth, each company has sought to shield its business from any potential slowdown in the economy by diversifying its revenue base and adding growth via carefully chosen acquisitions.

For Connaught, whose executive chairman was a contender for entrepreneur of the year, which provides repair and maintenance services of houses for councils and housing associations, 2007 was a transformational year.

A swathe of acquisitions changed the group’s profile, bulking up its compliance business and turning it into a very strong second growth-engine alongside social housing.

Having started out its life as a small concrete repair specialist in Sidmouth, Devon, Connaught has built up a strong position in the social housing sector. This is not a headline-grabbing business, but it is a booming one thanks to a government initiative to improve and maintain housing standards and a desire by local authorities to cut costs by outsourcing repairs.

A strong order book, tight cost controls, economies of scale and the group’s self-delivery model – which limits outsourcing to about 30 per cent of operations – have all contributed to a steady rise in the group’s operating margin.

Given the sector’s rosy outlook, Mark Davies, Connaught’s chief executive, could have easily sat back and kept the status quo. But he did not.

The trend in the social housing sector has been a shift towards longer term and more complex multi-service contracts. While Connaught already does installation, breakdown repair and services, Mr Davies spotted an opportunity to win bigger and longer maintenance contracts by offering a wider range of services that could turn the company into a “one-stop shop”.

With that in mind, it went on an acquisition spree last summer and snapped up four compliance businesses specialising in testing services. Analysts expect the acquisitions will create many cross-selling opportunities for the group.

Carefully-chosen and aptly-timed acquisitions have also laid the groundwork for the remarkable turnround at Senior, the engineering group that supplies parts to the aerospace and automotive industries.

The company was on the brink of collapse only eight years ago following a series of profit warnings and an accounting scandal. Although Graham Menzies, who was brought in to clean up the group, quickly moved to rein in costs, cut capital spending and reduce the debt load by selling most of the group’s unprofitable non-core businesses, recovery was slow. Both the aerospace and automotive markets were battered by the September 11 terrorist attacks and the weak US economy.

But a downturn cannot last forever and Mr Menzies understood that. So with the clean-up phase completed, he moved on to make a series of acquisitions to shift the group’s focus away from the ailing automotive components business (where profits from legacy products are still under pressure) and towards the aerospace sector where he correctly predicted that a revival would soon take place.

The move into aerospace was completed with the acquisition of Aerospace Manufacturing Technologies two years ago.

The acquisition increased Senior’s civil aerospace exposure to Boeing – in particular its 787 Dreamliner programme.

The group is reaping the benefits of the hefty investment that Boeing and Airbus are putting into their operations.

The group signalled a new chapter in its turnround last year when it raised its dividend for the first time in seven years. It also boasted a pre-tax profit of £18.1m ($36m), a 24 per cent increase from the year before.

Like Senior, Air Partner, the private jet brokerage, is also flying high. Disillusion with airport queues, combined with increased numbers of wealthy individuals demanding rapid, bespoke services have spurred a rapid growth in global private aviation in recent years.

Air Partner, which was established 46 years ago, has been a beneficiary of this shift. Pre-tax profit rose by nearly 80 per cent to £5.13m between 2002 and 2006.

David Savile, chief executive, has poured the profits back into expanding the business. He paid £5.1m for Gold Air International to give Air Partner its first in-house aircraft fleet two years ago and is looking to invest £7m to build a new terminal and hangar at Biggin Hill, the airport in Kent. Mr Savile’s ambition is for the airport to become a “high-security enclave” for the rich and famous.

But while the Royal family and Sir Philip Green figure among Air Partner’s high- profile clients, the company is not totally reliant on high-rollers.

A third of its business comes from governments, two-thirds from companies and it is geographically diversified, covering 15 countries. The spread of the business should help shield the company against any possible downturn.